Fighting the phone tax

Joel Kotkin is a presidential fellow at Chapman University and the author of "The City: A Global History."

With the faltering economy doubling its budget shortfall, the city of Los Angeles cannot afford to lose any tax revenue, which is why a telephone users utility tax, Proposition S, will appear on Tuesday’s ballot.

Many neighborhood council members across the city oppose the tax. Their opposition is less about Proposition S than an inchoate cry in the dark against what many perceive as City Hall’s relentless drive to subsidize dense developments, particularly downtown, and to provide lavish contracts for city workers while largely ignoring the needs of neighborhoods and the overall L.A. economy.

The defeat of the telephone tax measure, which is unlikely, would not end subsidies for developers or force the city to reopen union contracts. But a grass-roots movement spearheaded by neighborhood councils could blunt the city’s attempts to hand out new subsidies, or expand existing ones, on top of the hundreds of millions of dollars it has already given to powerful developers.


The city has taxed telephone services since 1967, and as wireless technology evolved, it extended the tax to cellphones, among other modern services. Wireless companies objected and sued the city to block the cellphone tax. With the courts siding with the companies, Mayor Antonio Villaraigosa pressed for the ballot measure that would keep the tax alive and bring in $243 million.

Proposition S has the support of L.A.'s highest officials, and the campaign for it has the financial backing of the city’s unions and big developers.

Greg Nelson, former director of the city’s Department of Neighborhood Councils, sees something potentially politically far-reaching in the councils’ opposition to the telephone tax. He says that most of the members of the councils cite larger issues for their coolness toward it. Most notably, he says, they object to the city’s willingness to pay ever-larger wages and benefits to its workers -- labor costs have surged 53% since 2000 -- and to hand out subsidies to downtown developers.

Jill Barad, president of the Sherman Oaks Neighborhood Council and founder of the Valley Alliance of Neighborhood Councils, echoed Nelson. “There’s tremendous distrust of the city” and “a sense that the city is controlled by downtown power-brokers,” she said.

“People here ask, why put money into a hotel next to Staples Center,” she continued. City Hall “keeps asking for money from the Valley, but we get very little in return.” She noted that other members of her neighborhood council were losing faith in the City Council’s ability to control costs, wondering why it didn’t better prepare for the economic downturn caused by the housing meltdown. After all, it was no great secret that the real estate market was vastly overinflated and in need of a correction.

Similar sentiments can be heard in other parts of the city. “We pay a lot of attention to the big [union] raises, the subsidies, Villaraigosa’s fundraising, Proposition S. Some of us realize we need to organize against these things,” Doug Epperhart, former president of the San Pedro Neighborhood Council, told me.

Daymond Johnson, former secretary of the South Central Neighborhood Council, says his group has little enthusiasm for Proposition S because its passage would allow City Hall to keep on handing out subsidies for downtown development that has offered little economic opportunity to poorer minority residents. “It doesn’t really matter if it’s the Valley or South Central,” Johnson told me. “The majority of everything goes downtown, but nothing is happening south of the 10 Freeway. All we get is more liquor stores.”

Three factors may intensify neighborhood council opposition to City Hall.

One, councils have a new power that could make them a more consistent voice in city policy: They can now introduce proposals in city government and no longer have to rely on City Council members to do it for them.

The second factor is the city’s darkening financial prospects. Last week, Villaraigosa revealed that the city is facing a $155-million budget shortfall because of the economic downturn. The larger-than-expected drop in sales and real estate-related taxes portends steep budget cuts, including the possibility of unpaid vacations for city workers in order to save money. When you add in the possibility that balancing the state’s $14.5-billion deficit could result in less money for the city, the budget picture could get even gloomier. Even if Proposition S passes, the city will need to find new revenue. One source is the city’s Department of Water and Power, which is seeking rate hikes for both water and power.

The problem is that many L.A. residents are already financially pinched by falling home values and the credit crunch. Higher DWP rates or a new tax would further strain their budgets. That could help fuel a grass-roots anti-tax movement that could strengthen the hand of neighborhood councils.

Finally, there may be renewed focus on the long-ignored, broad-based L.A. economy. Indeed, as the full extent of the real estate market collapse becomes evident, the very logic behind subsidized development -- that it will increase property values and create enough jobs to justify the subsidies -- may begin to fall apart. Now that some condo developers have to hand out Mini Coopers to lure potential buyers, the issue of whether the highly subsidized downtown “boom” has been a good investment is open for debate. Just last month, the third postponement of the groundbreaking for the $3-billion Grand Avenue project -- another beneficiary of huge public subsidies -- should raise questions about the development’s viability in the current market.

“If they think it’s so hot, why do they need subsidies?” City Controller Laura Chick asked. “And if it is not, what is it about, but a few developers getting rich while the rest of us get little?”

Chick reluctantly supports Proposition S because the city’s deficit would grow by another $243 million if it fails at the polls. But she shares the disdain of many neighborhood councils for the Villaraigosa administration’s focus on downtown real estate development. It would be better, she said, if the city instead spent more time on fostering private-sector job growth.

“We don’t have an economic development program in this city,” Chick told me. “Instead, we have a feel-good development program run by the developers.”

Perhaps some people downtown are recognizing this reality. The mayor’s Los Angeles Economy & Jobs Committee recently reported that the city’s economy is increasingly shaky. About 30,000 jobs have been lost since 1995, and more than 106,000 manufacturing jobs over the last 17 years, many of them in aerospace. The group of business and civic leaders called for a virtual “Marshall Plan” to revive Los Angeles’ economy.

But to bring about significant change, Chick said the city will need a new political movement. “If the neighborhood councils get together effectively,” she said, “we could have a revolution.”

Given the dismal record of L.A.'s recent economic development efforts, and the financial hole the municipality is now in, such a revolution may be what this city needs.